Distribution Agreements: Selection
A distribution agreement is an agreement between two parties whereby one party (the supplier) agrees to supply products to the other (the distributor), which the distributor will distribute. It is very common for distribution rights to be granted in relation to a particular territory or market.
Our distribution agreements are designed for use in relation to territorially-based distributorships within the EU irrespective of the location of the supplier. They may be adapted for use outside the EU by a suitably qualified lawyer.
You will need an exclusive distribution agreement if the arrangement you wish to document is territorially exclusive (i.e. the distributor will be the only person permitted to distribute the products in the territory). You should use one of the non-exclusive distribution agreement templates where a non-exclusive territory has been grated by the supplier (i.e. there may be a number of distributors covering the same territory). The exclusive distribution agreements contain minimum performance obligations; the non-exclusive distribution agreements do not.
Both the exclusive and non-exclusive agreements come in two flavours: standard and premium. If you need a detailed document, you should consider our premium distribution agreements. In addition to the terms contained in the standard documents, the premium documents include optional provisions covering: a trade mark licence, confidentiality obligations, forecasting, after-sales support, intellectual property infringements, data protection, publicity and non-solicitation.
All of our distribution agreements include optional "terms and conditions of supply" which specify the detailed terms upon which products will be supplied (such as delivery responsibilities, and passage of risk and title). Alternatively, you might like to incorporate your own terms and conditions of supply as an annex to the main distribution agreement.
Appointment and term
This short clause affirms the appointment of the distributor, either on an exclusive or non-exclusive basis. The appointment is limited to the term of the agreement and may also be limited territorially.
The term of the agreement begins upon the date of its execution. It may continue for a fixed period or indefinitely. In either case it may be terminated earlier in defined circumstances - e.g. upon breach of contract or the insolvency of a party (see Termination, below).
Exclusivity (exclusive agreements only)
The exclusivity clause in the distribution agreements has been drafted to take account of the EU and UK competition law rules affecting "vertical restraints".
The clause prohibits the supplier from appointing other third party distributors in the exclusive territory, itself supplying products in that territory, and supplying products to a third party for resale where that third party is not restricted from actively supplying the products in that territory.
The distributor is prohibited from supplying the products in reserved territories (defined in the agreement to mean "all countries, territories and areas excluding the Territory, being countries, territories and areas in respect of which the Supplier may from time to time appoint another exclusive distributor and those countries and areas which the Supplier has reserved to itself").
An optional time-limited clause restricting the distributor from purchasing the products from third parties, and from selling competing products, is also included.
Territory (non-exclusive agreements only)
In the non-exclusive agreements, this short clause may be used to prohibit the distributor from supplying the products in reserved territories (see Exclusivity, above).
This clause also explicitly acknowledges that the supplier may appoint third parties to distribute the products within the territory of the distributor, and may itself distribute products within that territory.
A miscellany of rights and obligations are provided for in this clause.
First, the distributor may be subject to a general obligation to use reasonable endeavours (or all reasonable endeavours) to market and sell the products.
Second, the distributor may be required to maintain such stocks, facilities and personnel as are required to meet customer demand within the distributor's territory.
Third, the distributor may be expressly prohibited from representing that it is an agent of hte supplier, or otherwise incurring liabilities on behalf of the supplier.
Fourth, each party may be prohibited from doing anything to damage the reputation of the other.
Fifth, a general obligation to supply necessary documentation, information and other support may be placed upon the supplier.
The premium versions of the distribution agreements also include an option prohibition on the alteration, disassembly or reverse engineering of the products by the distributor.
The marketing clause is different in each of the documents. However, all of them include two basic provisions: an obligation to display or distribute all marketing materials provided by the supplier; and a "flag clause" highlighting that the supplier may be asked by the distributor to participate in trade fairs.
The two exclusive distribution agreements provide that the distributor will be responsible for marketing, advertising and promoting the products in the distributor's exclusive territory.
Those documents, in addition to the non-exclusive premium document, also include an optional clause requiring the distributor to comply with the reasonable requests of the supplier in relation to the marketing of the products.
Finally, the premium exclusive distribution contract includes an optional provision requiring the distributor to spend a defined amount on advertising.
The premium distribution agreements (but not the standard ones) incorporate a fairly detailed trade mark licence. The purpose of the licence is to formalise the basis upon which the distributor may use the trade marks of the supplier, and to protect those trade marks and the supplier's rights therein.
If the distributor is simply distributing products and marketing materials bearing the supplier's trade marks, a licence will not be necessary. If however the distributor is creating materials - e.g. marketing materials, online materials - bearing the trade marks, it is advisable to use a formal licence.
The basic licence grant may be non-exclusive or exclusive within the territory. The suggested wording allows the distributor to use the marks only in connection with the marketing and sale of the products covered by the distribution agreement. Usage may be made subject to the supplier's specific consent to each form of use and/or to the requirements of the supplier's style guide.
All of our distribution contract templates include a reporting clause, although the version in the premium templates is a little more detailed.
The basic reporting clause provides that the distributor should keep accurate records and supply them to the supplier upon request. The more detailed clauses require that a regular written report be sent by the distributor to the supplier.
In addition, there is an optional section in the more detailed clauses dealing with notifications to the supplier in the event of a change of control of the distributor, or a change in the key personnel of the distributor.
Forecasting and ordering
Forecasting provisions are included in the premium documents, but not the standard documents. The suggested wording provides for quarterly reports of expected order quantities. The supplier is obligated to use all reasonable endeavours to meet orders that fall within the scope of a forecast.
A simple set of rules for ordering is included in all of the templates. The distributor must include specified information in each order. The supplier may be obligated to accept orders submitted by the distributor pursuant to a written quotation issued by the supplier, or alternatively may be free to accept or reject any order. Orders not accepted within a defined period may be deemed to be accepted or rejected.
Delivery, risk and title
All of the documents include provisions covering the delivery of products, and the passage of risk in and title to the products.
There are two alternative delivery clauses. Under the first, the distributor is responsible for delivery; under the second, the supplier is responsible. The first is similar, although not identical, to EX WORKS delivery under Incoterms 2000.
Retention of title provisions are included in all the documents, although they cover more ground in the premium versions.
In addition to the clauses summarised above, the documents include provisions relating to:
(i) prices payable for the goods;
(ii) payment procedures;
(iii) performance obligations (exclusive only);
(iv) after-sales customer support provided by the supplier and distributor (premium only);
(v) warranties relating to both products and obligations under the distribution agreement more generally;
(vi) indemnities relating to intellectual property rights infringements and product liability claims (premium only);
(vii) limitations of liability;
(viii) obligations on the distributor to ensure that the contract is performed legally (premium only);
(ix) termination and the effects of termination;
(x) data protection, confidentiality and publicity (premium only);
(xi) non-solicitation of employees (premium only); and